A closer look at pro-deregulation arguments and how to rebut them
In recent weeks, the debate regarding net neutrality has resurfaced thanks to Federal Communications Commission (FCC) Chairman Ajit Pai’s intention to scrap the existing net neutrality laws. True to form, the blogosphere and news media have exploded with takes on both sides of the aisle, hotly debating whether or not to repeal net neutrality rules. Of all of the responses, one that particularly made the rounds was written by Ben Thompson of Stratechery, originally titled “Why Ajit Pai is Right” (since renamed to “Pro-Neutrality, Anti-Title II”).
In this piece, as well as a follow up, (“Light Touch”, Cable and DSL; The Broadband Tradeoff; The Importance of Antitrust), Thompson takes the position that he, “absolutely [supports] regulation of ISPs and the preservation of the neutrality (at least in terms of blocking content).” In making this argument, however, Thompson suggests that by regulating ISPs we run the risk of stymieing innovation, as well as effectively increasing the barriers to entry in the already monopolistic ISP space. In these assumptions, Thompson oversimplifies the issues at hand, conflating a corporation’s efforts to maximize profits for shareholders with acting in the customer’s best interest, while never fully addressing that competition will always be the bottleneck in this debate.
Using Thompson’s writing on net neutrality as a framework, I aim to break apart the net neutrality debate to help arm the reader with a response to each pro-deregulation argument. Each section is titled with an argument, followed by an analysis of it.
Before we dive in, I think we need to set some common ground. I think it’s fair to say that everyone in this debate likes the Internet and the opportunities it creates. In this analysis, I assume that everyone wants the Internet to be the tool that connects each and every one of us as we see fit, all while supporting our growing demands to do so. The largest corporations, even Comcast and Verizon, owe their scale to the Internet, after all. Everyone needs to connect as their operations and lives demand.
From this starting point, the arguments around Net Neutrality fall into three categories with primary motivators. Along with the basic assumption they all share (that we all want connectivity), those motivators and categories are:
- Profit: The Internet is part of the free market. ISPs should be able to capitalize off of the user’s demand for data how they see fit. Consumer friendly policies come second.
- Stability: Consumer friendly policies are ideal, but the way to get there is through deregulation, which increases competition, investment, and thereby growth to also meet demand.
- Civil Liberties: Deregulation will lead to consumer abuse in a market with no competition and one of the highest barriers to entry, so regulation is what protects the consumer, which is the top priority.
I openly admit that I am in camp #3, yet I am part of a business that monetizes Internet access. I want to give you that full disclosure. Nobody will admit to being a part of #1, and you should assume by default that I am a part of #1, just like any corporation. It is my job to prove to you otherwise.
This article will focus on the arguments of camp #2, as furthered by Thompson. His stance is a very level-headed one, and it’s definitely worth analyzing because it’s rooted in the most sensible assumptions you’ll see on the other side of the debate.
Before getting into the details of the pro-deregulation side, it makes sense to naturally be skeptical of that position. Skepticism should always take lead when a corporation’s idea of ‘what should be’ happens to align with what works well for them. Put in a quote:
“It’s easy to confuse ‘what is’ with ‘what ought to be’, especially when ‘what is’ has worked in your favor.” — Tyrion
In the mind of the deregulation crowd and ISPs, ‘what is’ the impending tiered Internet is also ‘what ought to be’ for the consumer, when tiered Internet is what happens to work so well in their favor. Again, I warn the reader that he/she should proceed with skepticism in situations where what is best for the consumer aligns with more profits for a corporation.
Let’s get into each argument.
Title II (Regulation) and Net Neutrality are separate
Can you be pro Net Neutrality and anti-Title II? Let’s look at the differences between the two.
Net Neutrality is all about treating packets the same. Nobody is saying you should not pay more for using more, but the idea is that providers shouldn’t be able to discriminate on the source, destination, or content. Providers shouldn’t be able to filter the data you see, and they certainly shouldn’t be allowed to modify the site data they deliver to you.
Title II is a clause from the Communications Act of 1934. If broadband is classified under Title II, ISPs are defined as “common carriers” which means that Net Neutrality can be enforced.
The next question to ask is why Title II is the means for enforcing Net Neutrality. After all, Title II was drafted way before ARPANET was even an idea (and was intended to apply to standard utility companies). Title II is used to enforce Net Neutrality because of the court case Verizon Communications Inc. vs FCC in 2014. The supreme court ruled that given the current laws, net neutrality is only enforceable by the FCC if ISPs are classified as common carriers under Title II, instead of providers under Title I of the Communications Act of 1934.
So the FCC did it; they classified ISPs as common carriers so net neutrality could be enforced.
If the FCC under the Trump administration decides that broadband is not classified under Title II, then there are two ways to enforce Net Neutrality:
- Existing antitrust laws
- The government creates a new way to regulate ISPs
A world with Net Neutrality and without Title II requires Congress to take action.
Will the Republican majority Congress step up to the plate? Will Congress either bolster antitrust laws or find a new way to enforce net neutrality?
In the words of Thompson, “Remember, the United States is a country where one of the two major political parties routinely threatens to default on the nation’s debt to score political points. Infrastructure investment is embarrassingly low in things like roads and bridges, much less in environmentally sustainable power like nuclear. To put the future of broadband, something that requires continual investment, into the hands of such a dysfunctional government seems foolhardy at best.”
Emphasis on the quote is my own. Even he does not believe that we can put the future of broadband into the hands of such a dysfunctional government, yet the only way you can ever get “Pro-Net Neutrality, Anti-Title II” to be a reality is to do just that. At a realistic level, being anti-Title II is the same thing as being anti Net Neutrality unless you can convince your readers that we can count on Congress and Trump’s DOJ to do the right thing.
Zero-Rating Is Not Anti-Net Neutrality
Zero-Rating is tiered Internet, almost by definition. Thompson states, “zero-rating is not explicitly a net-neutrality issue: T-Mobile treats all data the same, some data just doesn’t cost money.” If ex-dingo Tom Wheeler gets it, I think everyone can see that this is not treating all data the same. The article states that Verizon and AT&T’s own content does not add to your data cap, but everyone else’s content does. Treating data equally is a binary condition — all packets come with the same conditions, or they don’t. In zero-rating, packets are being filtered, creating tiers that are predicated on different levels of payment, which is very clearly against the thesis of Net Neutrality.
ISPs can and will self-regulate
ISPs have a track record of ignoring regulations if they think they can get away with it. In one example, Comcast used man in the middle attacks to advertise their products to you. To put this simply, they take the http website data they’re supposed to put on your browser and inject their own custom code to serve up more advertisements to you. All this is without the consent of the website owner and without informing the consumer. A man in the middle attack is a technique used by hackers, and it seems that Comcast won’t let those types of techniques deter them from increasing profit.
This incredible article by Free Press demonstrates a pattern of abuse from almost every major telecom company in the US. Why would AT&T block Skype, FaceTime, and Google Voice? Because you are bypassing their own service, which costs them money. Why would Verizon block tethering after promising the FCC it would not do so? Because if you can tether from your friend, why would you both need a Verizon subscription? That costs them money. Behind every violation of Net Neutrality, detractors, including Thompson, will have you believe that of course it’s not about the money.
In this entire debate, nothing makes me more livid than a willful and convenient ignorance that corporations have a fiduciary responsibility to their shareholders to maximize profits. If a company can do that by illegally squashing competition and end up with a larger profit because legal fees don’t cost nearly as much as they made, they will do it. If automotive companies run that calculation and prioritize profit over safety, when lives are literally at stake, why wouldn’t ISPs do that when it’s something as meager as packet filtering?
In turn, Thompson attempts to rebut this argument: “Remember that ISPs bear massive fixed costs, which means they are motivated to maximize the number of end users. That means not cutting off sites and apps those customers want.”
With this generalization, however, Thompson eliminates nuance to support his claim. Their goal is not to maximize end users. Their goal is to maximize profit. Right now, 87% of Americans use the Internet. If ISPs can find a way to lower that number to 80%, and make 10% more money than they would before, they would do it. And if they willingly choose not to do that, the board will fire the CEO for not fulfilling his/her fiduciary responsibility to maximize profit to the shareholders and replace him/her with someone who will do it. There is no legal agreement that a corporation must maximize customer satisfaction and customer base, but there is one to maximize profit. That means that, to a good CEO, your civil liberties are also a column on a balance sheet. Do not forget that.
This topic always riles me up more than it should, but how can someone look at the average American with a straight face and pretend that some of the largest, profit driven corporations in the world will magically arrive at a solution that is necessarily beneficial for the consumer? Like I have said before and I’ll say a thousand more times: corporations have a fiduciary responsibility to their shareholders. Sometimes that intersects with what’s best for a consumer and citizen. There is no magical way by which that intersection happens, nor is there any imperative for it to happen. There are only two avenues for that intersection to form:
- the consumer’s willingness and ability to take their money to someone with more a pro-consumer policy, thereby creating a pro-consumer norm in the market
- industry regulations
If the market isn’t healthy enough (think enough competition) and the deregulation doesn’t have a realistic route to make the market healthy, then regulation is the only option.
Let us look at the specifics of Net Neutrality deregulation and see if it could actually increase competition and innovation.
Deregulation Increases Competition and Innovation
I want to give Thompson credit here, because he’s mostly right. Deregulation will increase competition, but only among big telecom. The problem is that for the free market approach to flourish, you can’t just encourage churn where customers flock between incumbents. There needs to be an avenue to dethrone incumbents for this to make sense. For the most part, there isn’t one. Many companies are trying, but they are going against the biggest leviathans in telecommunications history with a huge barrier to entry.
In general, it makes sense that deregulation increases competition. When you allow companies to optimize on an area they had no reason to do so before, innovation will occur and corporations will optimize that area, seeking a market advantage. This, in theory, allows an opportunity for both existing and new players to enter the market with that advantage. So let’s analyze that tangibly and look at the specific nuance of Net Neutrality deregulation.
If Net Neutrality is gone, ISPs will be in the business of filtering packets. How do you gain a competitive advantage in that line of business?
- Marketing to sell packet filtering to the consumer — ISPs will compete with each other on finding the best way to make tiered Internet palatable to the consumer
- Technical innovation in packet filtering— If you can filter packets better, your network will perform better (this might lead to better firewall technology)
Do either of these help new companies looking to compete with the legacy providers? Remember, competition is not just defined between the legacy providers; it also requires the ability for new entrants into the market. How does this deregulation directly allow new companies to innovate and optimize to compete with the market that’s owned by the legacy providers? (hint: it doesn’t)
Maybe the outrage and the distaste from the consumer will create enough competitive pressure for the incumbents to be replaced, but that’s a huge gamble to take, especially since the cost to do so is so high. Here, you are gambling with civil liberties on the gross promise that ISPs will create tiered packages because it will make them more money. And if you are lucky, you will happen to be in a market where the vitriol is so high that an incumbent could penetrate through. How long until something like that is nation wide? What happens in the meantime to consumers? What about new businesses that can’t afford to be in a competitive tier? At best they’re put at a disadvantage, and at worst they are put out of business.
Consumer dissatisfaction is an indirect effect of this deregulation. And that’s a function of how much can you screw over the consumer before the market opportunity is so high that they’ll pay whatever it takes just to not be a part of the legacy provider’s network. That’s a sadistic knob to turn when trying to open up the market.
Let me give an example of deregulation that directly increases competition and innovation so we can see the difference: What if the FCC deregulated licensed bands (chunks of the wireless spectrum)? More competitors would be able to provide LTE service (since it costs billions to buy these bands). That would also cause lots of crowding (extraneous signal) on these bands, causing the noise floor to go up. If the noise floor goes up, you can gain a competitive advantage by investing in better signal filtering technology and modulation techniques — a direct consequence of deregulation and increased competition. This is innovation that will undoubtedly be better for us all and has wide positive implications, not just for consumer Internet.
This example has a multitude of consequences, and I’m not advocating for it. I’m trying to demonstrate that blanket deregulation to achieve ambiguous competition and ambiguous innovation is one of the ways corporations lie to Americans. Nuance is key.
Shouldn’t we at least see if our worst fears are confirmed before we let them drive our decision-making?
When do we get to have this conversation again? Will the FCC of this administration change its decision? Probably not. Will the next administration? What about Congress? Reversing this deregulation will not be easy.
Additionally, at what point do we get to say that our worst fears have already been confirmed? What about when Comcast deletes its Net Neutrality pledge the same day the FCC announces plans to kill it? The writing’s on the wall, and the track record of abuse, as mentioned, is obviously there. Telecoms aren’t tiptoeing the line, waiting for Net Neutrality rules to break down and see where the free market takes them. As the Free Press article demonstrates, they’re actively crossing the lines at multiple opportunities and they hide it from the public. On top of that they are telling you that they’re going to do it in the future.
In our evaluation of our worst fears and whether or not they’re confirmed, we have to draw a line where we can conclude that it has been crossed. I draw that line at the systemic abuse of packet filtering, which has already happened. To the deregulation crowd, I pose the following question: What does that line look like? If that line cannot ever be crossed by ISPs no matter what they’ve done in the past or what they promise to do in the future, then it’s impossible to confirm our fears, let alone have an objective discussion about when deregulation goes too far.
Sure, the ISP market has no competition, but what about Google and Facebook?
Thompson states “I’d add, if neutrality and foreclosed competition are the issue net neutrality proponents say they are, then Google and Facebook are even bigger concerns than ISPs: both are super-aggregators with unprecedented power and the deepest moats ever seen in technology, and an increasing willingness to not be neutral”.
Whataboutism is how you distract from the point by saying “Well, what about these other guys?” While Google and Facebook are certainly a problem, they’re a completely different problem. Google and Facebook should not distract us from the the point of this debate, which is centered about ISPs.
We have no choice: we have to keep up with growing demand
The goal of this deregulation is to keep up with growing consumer demand. In the words of Pai, “What is the regulatory framework that will maximize the incentives of every company to deploy the next generation of networks?”
He believes that framework is based on allowing packet filtering, which creates tiered pricing and access. How does this mean we’ll get higher throughput links to keep up with demand? I am seriously asking here, because every single “Anti-Title II” argument is centered around this vague notion that all forms of deregulation have the potential to create any form of innovation we want to fit that specific argument. But that’s only the case if specific deregulation somehow financially incentivizes companies to innovate in a specific area. If consumer demand for increased data is met by an increased supply by tech companies via their online platforms, how does tiered pricing, as opposed to natural increases in supply and demand, incentivize ISPs to improve their networks?
Please reach out to me, or provide the public with a hypothetical, yet tangible vehicle by which this type of deregulation will directly incentivize higher capacity links for the next generation of networks. And if you cannot name one, you’re again trusting corporations in what seems to be the most one sided relationship in modern consumer-corporate relations.
Nuance is key, and if the citizens and consumers of this country are going to absorb the risk of tiered Internet and higher average prices for the sake of keeping up with our growing demand, we need to know exactly how corporations intend to do that.
Will a certain percentage of increased profits from tiered pricing be invested back in creating the “next generation of networks?” If that’s the plan, we’re by definition subsidizing ISPs so that they may hopefully increase our standard of living. That sounds like something the government should hold corporations accountable to — especially since we’ve already subsidized them once to the tune of $400 billion dollars with nothing to show for it.
If those profits aren’t reinvested into the infrastructure, we’ll end up with the most ridiculous double whammy in the history of telecommunications: tiered Internet for nothing, and another round of double-dipped subsidies to pay for the next generation network that never came.
What do you want the Internet to be?
I like to take a step back from this debate to ask myself this question. I want the Internet to be something I don’t think about. Give me the Wi-Fi info, and I’ll provide a URL to go to or an app to click on. I believe that our civilization as a whole improves as the velocity of ideas and interactions increase. The Internet is the tool that allows us to do just that, and I think it’s unacceptable for corporations to act as a filter for what should and shouldn’t be on that medium.
But what do Americans want the Internet to be? Turns out that 88% of Americans don’t want their data filtered either. And why is that very statistic not compelling enough? Net Neutrality is in the national dialogue and happens to be overwhelmingly supported by the the citizens of this country. Are our representatives fighting to represent us on this issue in Washington? With a likely 3–2 vote for repeal on Thursday December 14th, it’s important that we make our voices heard. You can check out Battle for the Net to find out more about what you can do. And if you can take the time, I encourage you to join me in Washington D.C. on Wednesday, December 13th in front of the FCC building starting at 10:00 AM for a peaceful protest.
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